Whether you’re a frequent traveller or a lover of online shopping, you may or may not have heard of a sneaky tactic called ‘dynamic currency conversion’.
It’s a trick that could be costing you a bundle, but the worst part is, you’re doing it voluntarily.
In fact, a recent report by Citi revealed that dynamic currency conversion was one of the most common foreign exchange traps.
So what is it and what can Aussies do to make sure it doesn’t happen to them?
What is dynamic currency conversion?
Have you ever been given the option to make a purchase in Australian dollars rather than the local currency when on holidays?
If you chose to pay in AUD, your transaction would have been converted from the local currency into Aussie dollars - this is called dynamic currency conversion.
While making purchases in Aussie dollars may seem like the savvier way to pay to avoid a foreign exchange fee, in reality, you’ll still pay the fee (which can be anywhere between 1% - 3%), plus a ‘dynamic currency conversion fee’ that can be an additional 5% - 15% - meaning you could be charged an extra 18% in fees.
Is there any benefit to using dynamic currency conversion?
The only possible benefit to using dynamic currency conversion while on holiday is so that you know exactly how much you’re being charged each time you make a purchase*. This can come in handy if you’re trying to keep to a budget while overseas.
For example, say you came across of pair of shoes that cost US$150 while on holiday and you have a maximum travel budget of AUD $500. If you used dynamic currency conversion, you’d be able to see exactly how much you’re about to be charged for the shoes and know you how much you’ll have left over to spend.
What are the drawbacks to dynamic currency conversion?
Although dynamic currency conversion can be used to keep track of your spending overseas, in doing so you’ll be subjected to:
- Poor exchange rates - Possibly the biggest drawback to currency conversion is the poor exchange rate you’ll get on purchases. The exchange rate is usually set by the merchant or if you’re withdrawing cash, an ATM operator and can be marked up by up to 15%.
- Foreign transaction fees - And even though you’ll be making a purchase in Aussie dollars, your debit or credit card provider will still recognise this as a foreign transaction and charge a foreign exchange fee for every transaction you make.
Do online stores use dynamic currency conversion?
This depends on the website, as some will choose to display the price in AUD but then charge your credit card in their local currency. Other sites will charge your credit card in Australian dollars.
How can I avoid dynamic currency conversion?
That’s easy, when given the option to pay in Australian dollars, just say no. And if you want to keep on top of your spending on your next getaway, you might want to consider:
- A prepaid travel card - If you’re someone who likes to travel on a budget, a prepaid travel card could be a top pick. With a prepaid travel card, you’ll be to choose the currencies that you plan to pay in, helping you keep track of your spending.
- A travel debit card - Similar to a prepaid travel card, a travel debit card allows you to use your own money, so you won’t ever have to worry about spending money you don’t have.
- A travel credit card - But if you prefer to earn a bonus while you travel, then a travel credit card could be your best bet. Many travel credit cards come with perks, like concierge service and free travel insurance - just be sure to choose a card that doesn’t come with a heavy foreign exchange fee.
- Cash - Ah yes, good old cash. While carrying large quantities of cash isn’t the savviest way to get around, if you’re familiar with the local currency, it can help you keep track of your spending.
*This does not include the foreign exchange fees that your debit or credit card provider may charge.
So if you’re preparing for your next holiday and need a great travel money option, make your next stop our travel money hub or check out some travel money options below!